NSCP CURRENTS
Regulatory Filings Refresher By Jessica Huelbig
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egulatory filings may not be the sexiest topic among compliance professionals. Even so, it is important to note that the U.S. Securities and Exchange Commission (“SEC” or “Commission”) has been giving them more attention of late. In September, for example, the Commission charged more than 30 individuals, investment firms, and publicly traded companies for allegedly failing to comply with various public company holdings and transactions reporting requirements. “The reporting requirements in the federal securities laws are not mere suggestions, they are legal obligations that must be obeyed. Those who fail to do so run the risk of facing an SEC enforcement action,” stated Andrew M. Calamari, Director of the SEC’s New York Regional Office.1 Investment advisers, whether registered with the SEC or not, must submit various regulatory filings to the Commission. In light of recent events, firms should reevaluate their filing obligations and make sure they have adopted appropriate processes and systems to track regulatory filing thresholds and deadlines. To that end, this article provides the following overview of the most common regulatory filings required of advisers.2
Form 13F Regulatory Background Section 13(f) of the Securities Exchange Act of 1934 (“Exchange Act”) requires institutional investment managers that exercise investment discretion over Section 13(f) securities with a combined value of at least $100 million to file Form 13F. These forms are posted via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) and become public upon submission. Section 13(f) securities are primarily U.S. exchange-traded stocks, shares of closed-end investment companies, shares of exchangetraded funds (“ETFs”), certain convertible debt securities, equity options, and warrants. The SEC issues an Official List of Section 13(f) Securities each quarter. Deadlines Form 13F must be submitted no later than 45 days after the end of each calendar quarter. If an adviser exercises investment discretion over $100 million or more in Section 13(f) securities at any month end during a fiscal year, it must file an initial Form 13F for the fourth quarter of that year and additional Form 13Fs for the first, second, and third quarters of the next year. If an adviser has less than $100 million in Section 13(f) securities for each month during the fiscal year, it no longer has to file Form 13F and the third1 SEC, “SEC Announces Charges Against Corporate Insiders for Violating Laws Requiring Prompt Reporting of Transactions and Holdings,” September 10, 2014 [http://goo.gl/nOhOjV]. 2 This summary is not all inclusive. An adviser may be subject to various other filings, including Form ADV, treasury filings, state filings, and foreign filings. Firms should consult with legal professionals to determine exactly which regulatory filings apply to them.
ABOUT THE AUTHOR Jessica Huelbig is a Senior Principal Consultant with ACA Compliance Group. www.acacompliancegroup.com. She can be reached at jhuelbig@ acacompliancegroup.com.
quarter filing will be the last one required until such time as the adviser exceeds the threshold again. Practical Guidance To determine whether to file Form 13F, an adviser should look at the aggregate long market value of all U.S. exchange-traded securities in its discretionary client accounts at the end of each month. Short and long positions should not be netted; only long positions should be considered in the calculation. If a manager buys options for clients, the options’ value should be calculated when determining whether the securities held exceed the threshold. When recording options on Form 13F, however, firms should report in terms of the underlying security (e.g., CUSIP, type, value, and shares). Keep in mind that if a manager shares investment discretion with any other managers, the managers involved may need to cross reference each other on their Form 13F filings. In order to avoid double counting, only one manager should report the Section 13(f) securities. Form 13H Regulatory Background Rule 13h-1 under the Exchange Act requires investment advisers to file Form 13H and obtain a large trader identification number (“LTID”) from the SEC if their transaction activity in National Market System (“NMS”) securities exceeds two million shares or $20 million during any calendar day or 20 million shares or $200 million during any calendar month. An NMS security is typically any security or class of securities listed on a national exchange or traded through NASDAQ. These include equities and options such as common stock, ETFs, American depository receipts, and warrants. Fixed income securities, exchange‐listed debt securities, securities futures, or open‐end mutual funds are not generally considered NMS securities. While Form 13H is filed through EDGAR, it is not made available to the public. Deadlines Once a trader meets or exceeds the identifying activity level , it must submit an initial Form 13H filing to the SEC no later than 10 calendar days after the date on which it met or exceeded the qualifying amount. When a manager identifies itself to the SEC as a large trader, it receives an LTID immediately via the acceptance email sent from EDGAR. Once the LTID is obtained, large traders must notify (that is, send the number to) all registered brokerdealers effecting transactions on their behalf within 10 calendar days of receiving the LTID. If changes to the Form 13H information occur, a revised Form 13H must be filed no later than 10 days after the end of the quarter in which the change occurs. If no changes occur, advisers must still file Form 13H annually no later than 45 days after the year ends. Practical Guidance To determine if they have exceeded the threshold in a day or month, advisers should aggregate all long and short NMS security transactions, not just transactions in one single security. If firms buy equity options for clients, the value and shares based on the underlying security should be used to determine whether a Form
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NSCP CURRENTS 13H filing is required. Firms that have already filed Form 13H must file an amendment no later than 10 days after each quarter in which any changes, such as the addition of a new broker, occur. Firms should also adopt a process for providing their LTID to new brokers as part of the account opening process.
additional requirements. Per Rule 13d-1(c) under the Exchange Act, these excluded individuals and entities may still use Schedule 13G to disclose passive equity interests, but only if they own less than 20% of the class. Once they exceed 20%, a Schedule 13D would be required.
Schedule 13D and 13G
Schedule 13G filings are also made through the EDGAR system and become public upon submission.
Schedule 13D
Deadlines
Regulatory Background
The general Schedule 13G and 13G/A filing deadlines under Rule 13d-1(b) are as follows:
Section 13(d) of the Exchange Act generally requires a beneficial owner of more than 5% of a class of equity securities registered under the Exchange Act to file Schedule 13D. The Exchange Act defines “beneficial ownership” broadly to include, among other things, •
the power to direct the voting of a security,
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the power to direct the disposition of a security, and
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the right to acquire beneficial ownership within 60 days through an option or by the conversion of a security.
Schedule 13D filings are made through the SEC’s EDGAR system and become public upon submission.
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If the adviser exceeds 10% for the first time in a security at the end of a month, the initial Schedule 13G must be filed no later than 10 days after the month ends.
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An initial annual filing must be made no later than 45 days after the year ends if the adviser exceeds 5% in a security at the year end.
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If its initial 13G filing references an amount that is more than 5% but less than 10%, an adviser that then exceeds 10% at month end must file an amendment no later than 10 days after the end of the month.
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If its last 13G or 13G/A filing references an amount over 10% an adviser that experiences an up or down fluctuation of more than 5% at month end must file an amendment no later than 10 days after the end of the month.
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Generally, annual 13G or 13G/A amendments must be made no later than 45 days after the end of the year in which the previous 13G or 13G/A filings were submitted.
Deadlines Initial Schedule 13D filings must be made no later than 10 days after the date of the transaction that raised beneficial ownership over the 5% level. Amendments to Schedule 13D must be filed promptly (i.e., within two business days of the occurrence) if material changes need to be made to the disclosures set forth in a previously filed Schedule 13D. Material changes include, among other things, an acquisition or disposition of securities in an amount equal to 1% or more of the class of outstanding securities. Schedule 13G Regulatory Background In general, a manager may file Schedule 13G instead of Schedule 13D if it holds more than 5% of a class of a registered equity security passively, that is, without intention to change or influence control of the issuer. Rule 13d-1(b) under the Exchange Act lists several classes of entities, including SEC and state-registered investment advisers, that may disclose passive equity interests on Schedule 13G in a more relaxed timeframe. Note, however, that high-net-worth individuals and private funds are subject to
To summarize, the general Schedule 13G and 13G/A deadline requirements under Rule 13d-1(c) are as follows: •
A manager must file an initial 13G no later than 10 days after exceeding 5%.
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If changes occur during the year that require amendments to a filed Schedule 13G, the amendments must be made no later than 45 calendar days after the end of that year.
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If an adviser exceeds 10%, a 13G/A must be filed no later than two days after the occurrence.
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If the last filing submitted references an amount greater than 10% but less than 20%, an amendment must be filed promptly if the adviser fluctuates up or down by more than 5%.
TM
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NSCP CURRENTS No further amendments are required once a Schedule 13G/A is filed for an amount less than 5%. If an investment adviser’s holdings change from passive to active (i.e., the adviser now intends to change or influence control of the issuer), then the adviser must file Schedule 13D no later than 10 calendar days after the change occurs. At that time, it will also become subject to a time out from trading in the security or securities affected by this shift. Practical Guidance for 13G and 13D To determine whether a particular equity security may trigger a Schedule 13G or 13D filing, firms may consider searching the company on EDGAR to see if it is registered under Section 12 of the Exchange Act. Firms may also reference public company filings in EDGAR to determine the total number of shares outstanding when calculating their total beneficial ownership. As a reminder, any options, warrants, or other derivatives that could be exercised within 60 days and result in ownership of the underlying security should be taken into account when computing total beneficial ownership. Section 16 Filings Regulatory Background Section 16 of the Exchange Act requires certain filings (Forms 3, 4, and 5) by any direct or indirect beneficial owners of more than 10% of any class of a registered equity security, as well as the directors and officers of the issuer of such a security. (Note that, typically, a Form 3 filing is not required for a registered investment adviser with greater than 10% ownership if the security is associated with a Schedule 13G filing and the shares are held for clients in a fiduciary capacity, in the ordinary course of business, and without intent to change or influence control of the issuer.) Section 16 filings are made on the SEC’s EDGAR system and become public upon submission. Deadlines A Form 3 should be filed with the SEC no later than 10 days after the manager passes 10% ownership. If anything changes regarding ownership, a Form 4 should be filed with the SEC promptly. A Form 5 must be filed no later than 45 days after the end of the fiscal year. Practical Guidance The guidance provided above for Schedule 13D and 13G generally applies to determining beneficial ownership for Section 16 filing purposes. Additional Private Fund Filings Form PF Form PF is a web‐based form required by Rule 204(b)‐1 under the Investment Advisers Act of 1940 and Rule 4.27 under the Commodity Exchange Act. An investment adviser that is registered or required to register with the SEC and that advises one or more private funds with at least $150 million in private fund regulatory assets under management as of their most recently completed fiscal year must file Form PF. Filing deadlines depend on the type of funds managed and the amount of regulatory assets under management. Form PF is filed via the Private Fund Reporting Depository, which is a subsystem of the Investment Adviser Registration Depository. These filings are not made available to the public.
Form D All issuers offering securities in reliance on an exemption under Regulation D of the Securities Act (such as private funds) must file Form D electronically through EDGAR no later than 15 days after the first sale of securities and annually within 12 months of the previous filing. Should an adviser discover any material mistake or error on a previously filed form, it should file a corrected form as soon as possible. Form D is made public upon submission to EDGAR. Generally, copies of Form D filings, filing fees, and other documents must be sent to states where offerings are made. These requirements are referred to as “blue sky” filings and the rules for them vary by state. Conclusion Firms should revisit their regulatory filing obligations whenever new strategies are adopted, client types change, and/or assets under management experience material shifts. Investment managers should also adopt processes to review holdings and transactions periodically in light of the various regulatory filing requirements noted above. To facilitate tracking relevant filing thresholds and deadlines, many firms use order management systems or other automated methods to alert them when they are nearing a threshold or deadline.
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